A wrongful death lawsuit Tuesday claims that online securities app Robinhood was directly responsible for the suicide of a 20-year-old student after he was led to believe that he had racked up hundreds of thousands of dollars in losses while trading options.
Alex Kearns, a then-sophomore at the University of Nebraska, killed himself after he found out that he had a negative $730,165 cash balance on the trading app. Alex's parents Dan and Dorothy Kearns said that their son likely took his own life to protect the family from the financial obligation.
Options allow a trader the right to buy or sell at a set price on or before a certain date with a normally small upfront payment.
In the suit filed in a California state court, Kearns' parents, argued that Robinhood's aggressive tactics to lure "inexperienced and unsophisticated investors" to trade options was reckless and was the cause of their son's death.
"This case centers on Robinhood's aggressive tactics and strategy to lure inexperienced and unsophisticated investors, including Alex, to take big risks with the lure of tantalizing profits," the lawsuit said.
The suit also accuses Robinhood of unfair business practices and of causing emotional distress. According to the complaint, Alex allegedly made three attempts to contact the company's customer service regarding the negative balance. However, his messages reportedly went unanswered.
In his suicide note, Alex blamed Robinhood for allowing him to place bets with too much risk. He said that the company should have automatically canceled his losing bets. Alex admitted on the note that he had "no clue" about what he was doing.
"How was a 20-year-old with no income able to get assigned almost a million dollars' worth of leverage? There was no intention to be assigned this much and take this much risk, and I only thought that I was risking the money that I actually owned," the note had read.
In response to the suit, Robinhood said that they were "devastated" by the death of one of their customers and the company has since made significant improvements to its options offerings.
Since the app became the go-to platform for first-time investors, Robinhood has come under intense scrutiny for its "gamification" of investing. The company has also been accused of predatory marketing practices and targeted inexperienced investors with the intent of gaining profit.